Just a month ago, Goldman Sachs strategists set a target for the S&P 500 index for 2024. As the year-end gains of the US stock market showed no signs of weakening, they recently raised their target value forecast for the benchmark index.
The Goldman Sachs strategist team led by David Costing wrote in a report that the Federal Reserve's shift towards dovism last week, coupled with a decline in consumer prices, will lead to a decrease in actual returns and support stock valuations.
"The stock market has priced positive economic activity, but now reflects a stronger outlook," they said.
The S&P 500 index is expected to reach 5100 points by the end of next year
Goldman Sachs now expects the S&P 500 index to reach a new high in 2024, as Wall Street peers such as Bank of America and Oppenheimer Asset Management have previously expressed similar views.
Goldman Sachs predicts in its latest report that the S&P 500 index will reach 5100 points by the end of next year. The new target price has nearly 8% room for increase compared to the current level.
In a preliminary outlook released about a month ago, Goldman Sachs predicted that the S&P 500 index would reach 4700 points by the end of next year.
Costing said that due to the loose financial environment, which should boost economic activity and company profits, his forecast for a year-on-year profit growth of 5% in 2024 may be too pessimistic.
The US stock market has surged since the beginning of this year due to market expectations that the Federal Reserve's policy will shift towards a dovish direction, and optimistic sentiment in artificial intelligence has boosted technology stocks.
Last Wednesday, the Federal Reserve kept interest rates unchanged for the third consecutive time. The Federal Reserve also hinted that the significant interest rate hikes to curb inflation may have come to an end, and interest rates may be lowered in 2024.
The Federal Reserve's "interest rate cut signal" has sparked a frenzy in the market, with US stocks continuing to rise in the past few days. On Monday, the three major indexes collectively closed higher, with the Dow reaching a new historical high. The S&P 500 index is only 1.2% away from the historical closing high set in January 2022.
Costin pointed out that despite the rebound in the stock market, with rising interest rates, $1.4 trillion has flowed into money market funds this year, far higher than the $95 billion flowing into US stocks. He pointed out, "As interest rates begin to decline, investors may shift some of their cash into the stock market."
Expectations of interest rate cuts are heating up
Last week, Goldman Sachs adjusted its expectations for a rate cut from the Federal Reserve, with the first rate cut expected to take place in March next year. And a month ago, it expected the Federal Reserve to start cutting interest rates from the fourth quarter of next year.
Goldman Sachs is not the only Wall Street investment bank expected to start cutting interest rates in the first quarter of next year.
Economists at Bank of America on Monday increased the expected Fed rate cut for next year from 75 basis points to 100 basis points, citing that inflation is falling faster than predicted. The bank had previously expected the Federal Reserve to start cutting interest rates from June next year, and now it is expected to start in March.
According to the CME FedWatch tool, overall, the market believes that the likelihood of the Federal Reserve cutting interest rates in March next year is close to 75%. A month ago, this possibility was only 28%.
As expectations of interest rate cuts intensify, Wall Street is becoming increasingly optimistic about the outlook for US stocks. Even Morgan Stanley strategist Michael Wilson, one of the most famous bears on Wall Street this year, has stated that the Fed's shift towards a dovish stance indicates its desire to ensure timely policy changes to achieve a soft landing.
He said, "This is a positive outcome for the stock market," because if the Federal Reserve puts maintaining economic growth above lowering inflation to target levels, the likelihood of avoiding an economic recession will increase.